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Reliance Industries – BUY Weak 4Q; but marching ahead in tough macro Financial summary (Rs bn) Y/e 31 Mar, Consolidated FY18A FY19A FY20ii FY21ii FY22ii Revenues (Rs bn) 3,917 5,671 5,967 7,886 8,673 Ebitda margins (%) 16.4 14.8 14.8 10.3 12.6 Pre-exceptional PAT (Rs bn) 350 396 438 364 557 Reported PAT (Rs bn) 361 396 394 364 557 Pre-exceptional EPS (Rs) 55.2 62.5 69.1 57.4 87.9 Growth (%) 17.0 13.1 10.6 (16.9) 53.1 PER (x) 26.6 23.5 21.2 25.5 16.7 ROE (%) 12.6 11.6 10.4 7.7 10.9 Net debt/equity (x) 0.7 0.7 0.7 0.6 0.6 EV/Ebitda (x) 16.9 13.6 13.2 14.2 10.6 Price/book (x) 3.2 2.4 2.0 1.9 1.7 OCF/Ebitda (x) 1.1 0.5 1.1 0.7 0.6 Source: Company, IIFL Research; Priced as on 30 April 2020 Harshvardhan Dole | [email protected] 91 22 4646 4660 Rishi Masand | [email protected] 91 22 4646 4652 | CMP Rs1466 12-mth TP (Rs) 1673 (14%) Market cap (US$m) 123,742 Enterprise value(US$m) 151,578 Bloomberg RIL IN Sector Oil & Gas Shareholding pattern (%) Promoters 50.1 Pledged (as % of promoter share) 0.0 FIIs 23.1 DIIs 11.9 52Wk High/Low (Rs) 1618/876 Shares o/s (m) 6339 Daily volume (US$ m) 361.8 Dividend yield FY21ii (%) 0.3 Free float (%) 50.0 Price performance (%) 1M 3M 1Y Absolute (Rs) 31.6 3.9 5.3 Absolute (US$) 43.2 (3.3) (2.0) Rel. to Sensex 17.2 21.1 18.9 Cagr (%) 3 yrs 5 yrs EPS 16.3 11.8 Stock performance 0 500 1,000 1,500 2,000 0 50,000 100,000 150,000 200,000 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Feb-20 Apr-20 Vol('000, LHS) Price (Rs., RHS) Result update Earnings downgrade 4 May 2020 RIL’s 4QFY20 consolidated PAT fell 39% YoY, owing to weaker than expected O2C performance; GRMs at US$4.4/bbl were at historic lows (weak spreads + inventory loss). JIO’s performance was in line, while Retail saw significant deceleration in sales in March (Covid-linked restrictions). Investors should see through the challenging macro environment (we cut FY21/22ii EPS 11- 35%) and focus on Facebook + JIO synergies, carve out of O2C business, induction of a 2nd investor at JIO, announced deleveraging initiatives, etc. RIL is our sector top pick; retain BUY. RIL’s 4Q – Weak quarter: RIL’s 4QFY20 standalone and consolidated PAT fell 70% YoY and 39% YoY respectively, significantly below estimates. The O2C business performance was adversely affected by volatility in feedstock prices, weak demand & Rs42.45bn (US$4.4/bbl) inventory loss. JIO’s revenue/PAT growth of 6% QoQ/72% QoQ was largely in-line; R- Retail’s 33% YoY growth in Ebitda was partly on the back of Rs2.3bn gain from adoption of IndAS-116; strong growth in the quarter’s first two months was offset by the drag in March. The B2C businesses now account for 41% share in Ebitda (ex-inventory loss) vs 30% YoY. Marching ahead in a tough macro: While RIL continues to operate its plants at rated capacity (competitive on cash costs), the margin outlook, at least till FY21ii, remains weak. R-Retail plans to leverage JIO’s infrastructure, to boost omni-channel sales (grocery, electronics and fashion); it targets improving the last-mile connectivity infrastructure by 10x. In the mid-term, JIO’s growth strategy is to leverage its new partnership with FB. Meanwhile, RIL plans to: 1) carve out the O2C business (NCLT filing soon); 2) raise Rs531bn through a rights issue (1:15 at Rs1,257/share, 22-May launch); 3) shortlist a 2nd strategic investor at JIO. Plans are to pare the entire net debt of Rs1.6trillion by CY20. Cut estimates; retain BUY: We lower RIL’s FY21/22ii consolidated EPS by 11-35%, to reflect weakness in the O2C segment and slower ramp up in retail sales; JIO’s earnings remain largely unchanged. Our SoTP ascribes US$55bn EV to the O2C business, based on normalised business environment vs the existing uncertain macro; valuations for JIO and R- Retail remain broadly unchanged, also it does not reflect the rights issue. As such, investors would see through the challenging macro and focus on the broader revenue model, deleveraging initiatives & O2C carve out.
Transcript
  • Reliance Industries – BUY

    Weak 4Q; but marching ahead in tough macro

    Financial summary (Rs bn)

    Y/e 31 Mar, Consolidated FY18A FY19A FY20ii FY21ii FY22ii

    Revenues (Rs bn) 3,917 5,671 5,967 7,886 8,673

    Ebitda margins (%) 16.4 14.8 14.8 10.3 12.6

    Pre-exceptional PAT (Rs bn) 350 396 438 364 557

    Reported PAT (Rs bn) 361 396 394 364 557

    Pre-exceptional EPS (Rs) 55.2 62.5 69.1 57.4 87.9

    Growth (%) 17.0 13.1 10.6 (16.9) 53.1

    PER (x) 26.6 23.5 21.2 25.5 16.7

    ROE (%) 12.6 11.6 10.4 7.7 10.9

    Net debt/equity (x) 0.7 0.7 0.7 0.6 0.6

    EV/Ebitda (x) 16.9 13.6 13.2 14.2 10.6

    Price/book (x) 3.2 2.4 2.0 1.9 1.7

    OCF/Ebitda (x) 1.1 0.5 1.1 0.7 0.6

    Source: Company, IIFL Research; Priced as on 30 April 2020

    Harshvardhan Dole | [email protected] 91 22 4646 4660

    Rishi Masand | [email protected] 91 22 4646 4652

    |

    CMP Rs1466

    12-mth TP (Rs) 1673 (14%)

    Market cap (US$m) 123,742

    Enterprise value(US$m) 151,578

    Bloomberg RIL IN

    Sector Oil & Gas

    Shareholding pattern (%)

    Promoters 50.1 Pledged (as % of promoter share) 0.0

    FIIs 23.1

    DIIs 11.9

    52Wk High/Low (Rs) 1618/876

    Shares o/s (m) 6339

    Daily volume (US$ m) 361.8

    Dividend yield FY21ii (%) 0.3

    Free float (%) 50.0

    Price performance (%)

    1M 3M 1Y

    Absolute (Rs) 31.6 3.9 5.3

    Absolute (US$) 43.2 (3.3) (2.0)

    Rel. to Sensex 17.2 21.1 18.9

    Cagr (%) 3 yrs 5 yrs

    EPS 16.3 11.8

    Stock performance

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    Vol('000, LHS) Price (Rs., RHS)

    Result update

    Earnings downgrade

    4 May 2020

    RIL’s 4QFY20 consolidated PAT fell 39% YoY, owing to weaker

    than expected O2C performance; GRMs at US$4.4/bbl were at

    historic lows (weak spreads + inventory loss). JIO’s performance

    was in line, while Retail saw significant deceleration in sales in

    March (Covid-linked restrictions). Investors should see through

    the challenging macro environment (we cut FY21/22ii EPS 11-

    35%) and focus on Facebook + JIO synergies, carve out of O2C

    business, induction of a 2nd investor at JIO, announced

    deleveraging initiatives, etc. RIL is our sector top pick; retain BUY.

    RIL’s 4Q – Weak quarter: RIL’s 4QFY20 standalone and consolidated

    PAT fell 70% YoY and 39% YoY respectively, significantly below estimates.

    The O2C business performance was adversely affected by volatility in

    feedstock prices, weak demand & Rs42.45bn (US$4.4/bbl) inventory loss.

    JIO’s revenue/PAT growth of 6% QoQ/72% QoQ was largely in-line; R-

    Retail’s 33% YoY growth in Ebitda was partly on the back of Rs2.3bn gain

    from adoption of IndAS-116; strong growth in the quarter’s first two

    months was offset by the drag in March. The B2C businesses now account

    for 41% share in Ebitda (ex-inventory loss) vs 30% YoY.

    Marching ahead in a tough macro: While RIL continues to operate its

    plants at rated capacity (competitive on cash costs), the margin outlook,

    at least till FY21ii, remains weak. R-Retail plans to leverage JIO’s

    infrastructure, to boost omni-channel sales (grocery, electronics and

    fashion); it targets improving the last-mile connectivity infrastructure by

    10x. In the mid-term, JIO’s growth strategy is to leverage its new

    partnership with FB. Meanwhile, RIL plans to: 1) carve out the O2C

    business (NCLT filing soon); 2) raise Rs531bn through a rights issue (1:15

    at Rs1,257/share, 22-May launch); 3) shortlist a 2nd strategic investor at

    JIO. Plans are to pare the entire net debt of Rs1.6trillion by CY20.

    Cut estimates; retain BUY: We lower RIL’s FY21/22ii consolidated EPS

    by 11-35%, to reflect weakness in the O2C segment and slower ramp up

    in retail sales; JIO’s earnings remain largely unchanged. Our SoTP

    ascribes US$55bn EV to the O2C business, based on normalised business

    environment vs the existing uncertain macro; valuations for JIO and R-

    Retail remain broadly unchanged, also it does not reflect the rights issue.

    As such, investors would see through the challenging macro and focus on

    the broader revenue model, deleveraging initiatives & O2C carve out.

  • [email protected] flcap.com

    Reliance Industries – BUY

    2

    Figure 1: RIL’s 4QFY20 consolidated PAT was down 39% YoY

    Consolidated (Rs m) 4QFY19 3QFY20 4QFY20 YoY QoQ

    Net revenue 1,386,590 1,529,390 1,355,690 -2% -11%

    Total operating costs 1,178,270 1,305,530 1,144,580 -3% -12%

    Employee costs 33,450 38,800 37,130 11% -4%

    Purchase of products 321,920 384,760 317,970 -1% -17%

    Raw material consumption 604,560 669,950 577,820 -4% -14%

    Other expenses 218,340 212,020 211,660 -3% 0%

    EBITDA 208,320 223,860 211,110 1% -6%

    EBITDA margin 15.0% 14.6% 15.6% 55bps 93bps

    Depreciation 52,950 55,450 63,320 20% 14%

    EBIT 155,370 168,410 147,790 -5% -12%

    Other income 31,470 36,450 48,040 53% 32% Interest 48,940 54,040 60,640 24% 12% PBT 137,900 150,820 135,190 -2% -10% Tax 34,310 31,210 26,770 -22% -14% Share of Associates/Minority Int 30 (1,440) (2,270) Adj PAT 103,620 118,170 106,150 2% -10% Adj PAT margin 7.5% 7.7% 7.8% 36bps 10bps Extraordinary Income 0 (1,770) (42,670) Reported PAT 103,620 116,400 63,480 -39% -45% Reported EPS (Rs) 16.3 18.4 10.0 Source: Company, IIFL Research

    Figure 2: Share of non-oil businesses in consolidated EBITDA is 41% now vs 30% YoY* Consol Segment EBITDA (Rs m) 4QFY19 3QFY20 4QFY20 YoY QoQ Petchem 93,610 72,520 59,380 -37% -18% Refining 49,640 65,300 66,140 33% 1% Oil & Gas 2,580 640 (460) NA NA Retail 19,230 27,270 25,560 33% -6% Jio 43,290 58,330 64,520 49% 11% Others (30) (200) (4,030) NA NA Total 208,320 223,860 211,110 1% -6% Source: Company, IIFL Research * ex-of inventory loss adjustment

    Figure 3: RIL’s 4QFY20 standalone PAT was Rs25.8bn YoY, below estimates

    (Rs m) 4QFY19 3QFY20 4QFY20 YoY QoQ

    Net revenue 835,970 862,890 736,730 -12% -15%

    Total operating costs 698,930 734,180 626,130 -10% -15%

    Employee costs 14,050 14,260 15,060 7% 6%

    Purchase of products 15,940 18,410 21,580 35% 17%

    Raw material consumption 572,040 619,350 492,000 -14% -21%

    Other expenses 96,900 82,160 97,490 1% 19%

    EBITDA 137,040 128,710 110,600 -19% -14%

    EBITDA margin 16.4% 14.9% 15.0% -138bps 10bps

    Depreciation 24,650 25,510 26,850 9% 5%

    EBIT 112,390 103,200 83,750 -25% -19%

    Other income 28,830 39,540 42,290 47% 7% Interest 27,910 25,200 41,610 49% 65% PBT 113,310 117,540 84,430 -25% -28% Tax 27,750 21,690 16,180 -42% -25% Tax rate 24% 18% 19% -533bps 71bps Adj PAT 85,560 95,850 68,250 -20% -29% Adj PAT margin 10.2% 11.1% 9.3% -97bps -184bps EO items - - (42,450) Reported PAT 85,560 95,850 25,800 -70% -73% Reported PAT margin 10.2% 11.1% 3.5% -673bps -761bps Shares outstanding (m) 6,339 6,339 6,339 Reported EPS (Rs) 13.5 15.1 4.1 Source: Company, IIFL Research

    Figure 4: RIL continued to outperform the benchmark Singapore GRMs

    (US$/bbl) 4QFY19 3QFY20 4QFY20 YoY QoQ

    Gasoil 14.0 15.4 11.9 -15% -23%

    Gasoline 3.7 12.9 6.7 81% -48%

    Naphtha -7.5 -2.2 -2.9 NA NA

    FO -0.9 -19.7 -8.4 NA NA

    RIL GRMs 8.2 9.2 8.9 9% -3%

    Singapore GRMs 3.2 1.7 1.2 -63% -29% Source: Company, IIFL Research

  • [email protected] flcap.com

    Reliance Industries – BUY

    3

    Weak O2C; resilient JIO and Retail

    RIL’s 4QFY20 consolidated PAT fell 39% YoY – below consensus.

    It booked inventory loss of Rs42.45bn (~US$4.4/bbl) in its

    refining business (~US$40/bbl fall in oil prices), while

    petrochem Ebitda fell 37% YoY. The sharp 49% YoY rise in JIO

    Ebitda was in-line, while the 33% YoY growth in retail Ebitda

    was partly on account of adoption of the IndAS-116 model

    (lease accounting). The share of B2C businesses in overall

    Ebitda now stands at 41% vs 30% earlier (ex-adjustment of

    inventory losses).

    Refining – Weak performance: RIL reported GRM of US$4.5/bbl in

    4QFY20, one of the lowest in its history. Owing to ~70% slump in oil &

    product prices during the quarter, the company incurred inventory loss

    of Rs42.45bn (classified as extraordinary items in its P&L). We note that

    the volatility in oil prices has been unprecedented and such (resultant)

    losses are likely to be reported by other refining companies, too, in

    India. As such, during the quarter, product spreads across the segment

    were weak, as global demand collapsed by almost 25%. The Singapore

    benchmark margin in the period was estimated at US$1.2/bbl and, to

    that extent, RIL’s GRMs stand out well.

    RIL, in 4QFY20, operated its refinery at 107% utilisation, maximising

    production of the relatively high-margin products (gasoil) and

    optimising crude purchases. Opex during the quarter was estimated at

    US$2.1/bbl (vs US$2.3/bbl last quarter; Figure 6).

    Figure 5: Refinery utilisation improved to 107%

    Source: Company, IIFL Research

    Figure 6: Opex/bbl was lower at US$2.1/bbl this quarter

    Source: Reuters, Company, IIFL Research Note: Opex/bbl is not comparable pre 2QFY20, due to reclassification of certain expenses to the ‘others’ segment

    80%

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  • [email protected] flcap.com

    Reliance Industries – BUY

    4

    Petrochemicals – Mixed performance:

    RIL’s Petchem Ebitda declined 37% YoY and 18% QoQ, despite

    petrochemicals’ production remaining flat. Consequently, Ebit/tonne was

    down 22% QoQ, at US$64/MT. Production of polymers was up 6% YoY

    and almost flat QoQ, while that of polyester intermediaries (PX, PTA and

    MEG) stayed broadly unchanged; the polyester production was also

    unchanged.

    The weakness in polyester intermediates was partially offset by

    relatively better margins for downstream polyester-products & polymers

    (PE-naphtha). There was weakness across product categories,

    considering the weak demand outlook and the recent start-up of new

    capacities in polymers and polyester intermediaries.

    On QoQ basis, due to a large fall in crude prices, spreads rose slightly −

    POY (to 16%), PSF (to 13%), PET (to 22%), PX (to -1%), PTA (to 8%),

    MEG (to 12%), PP (to -2%), HDPE (to 32%) and PVC (to 6%). However,

    the overall demand environment remains weak.

    Figure 7: Production was largely flat

    Production (mMT) 4QFY19 3QFY20 4QFY20 YoY Chg QoQ Chg

    PFY, PSF, PET 0.71 0.71 0.69 -4% -4%

    PX, PTA, MEG 2.76 2.84 2.81 2% -1%

    PP, PE, PVC 1.44 1.53 1.54 6% 0% Source: Company, IIFL Research

    Figure 8: Ebit/tonne (on production basis) was sharply lower

    Source: Company, IIFL Research

    Figure 9: PX margins are expected to remain under pressure due to supply additions

    Source: IHS, ThaiOil, IIFL Research

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  • [email protected] flcap.com

    Reliance Industries – BUY

    5

    R-Retail – Grocery saves day; improved disclosures a positive

    RIL’s retail business faced significant challenges in March-2020, given

    the lockdown imposed due to COVID-19. In 4QFY20, overall sales were

    up 4% YoY, albeit down 6% QoQ. Only, the grocery and connectivity

    segments saw 51% YoY and 24% YoY growth respectively, while

    consumer electronics’ sales fell sharply by 44% YoY, given constraints in

    the supply chain in March. Petro-retail sales were flat YoY, along with

    fashion and lifestyle. As per disclosures, R-Retail was experiencing

    growth across all the segments (Figure 13); however, the performance

    was dragged by the unforeseen collapse in March.

    In 4Q, RIL’s overall Ebitda margin expanded 130bps to 6.7% vs 5.2%

    YoY and 6% QoQ. Notably, R-Retail adopted IndAS-116 for lease

    accounting, which led to a gain of Rs2.3bn and boosted Ebitda margins

    by almost 70bps. For 4Q, RIL has also disclosed Ebitda performance

    from various sub-segments of the retail business (Figure 15); the

    comparable numbers, however, have not been shared.

    RIL’s core retail business now accounts for 86% of retail Ebitda and only

    51% of sales. Retail area of 2.4m sqft was added in 4Q − 468 store

    additions vs 415 store additions in 3Q. This resulted in total retail area

    increasing to 28.7m sqft across 11,784 stores.

    Figure 10: Retail revenue growth decelerated from 27% in 3Q to 4% in 4Q

    (Rs m) 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20

    Revenues 355,770 366,630 381,960 412,020 453,270 382,110

    % growth 89% 52% 48% 27% 27% 4%

    Ebitda 16,800 19,230 20,490 23,220 27,270 25,560

    Ebitda margin (%) 4.7 5.2 5.4 5.6 6.0 6.7

    Ebitda growth (%) 178% 77% 70% 67% 62% 33%

    Ebit 15,120 17,210 17,770 20,350 23,890 20,620

    Ebit margin (%) 4.2 4.7 4.7 4.9 5.3 5.4

    Source: Company, IIFL Research

    Figure 11: Retail added 2.4m sqft of retail space during the quarter

    Source: Company, IIFL Research

    Figure 12: Consumer Electronics and Fashion & Lifestyle affected by the COVID disruption

    Source: Company, IIFL Research

    9,907 10,415 10,644 10,901 11,316 11,784

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    No. of stores Retail area (mn sq ft) - RHS (mn sq ft)

    18.9% 19.4% 26.3%

    29.6% 31.7% 16.2%

    9.1% 8.7% 8.6%

    32.8% 32.1% 39.8%

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    4QFY19 3QFY20 4QFY20

    Petro Retail Connectivity Fashion & Lifestyle

    Consumer electronics Grocery (Sales mix)

  • [email protected] flcap.com

    Reliance Industries – BUY

    6

    Figure 13: Segmental performance - Revenue

    (Rs m) 4QFY19 4QFY20 YoY

    Grocery 69,439 100,430 44.6%

    % share 18.9 26.3 734bps

    Consumer electronics 108,458 61,980 -42.9%

    % share 29.6 16.2 -1336bps

    Fashion & Lifestyle 33,354 32,920 -1.3%

    % share 9.1 8.6 -48bps

    Connectivity 120,168 151,930 26.4%

    % share 32.8 39.8 698bps

    Petro Retail 35,212 34,860 -1.0%

    % share 9.6 9.1 -48bps

    Total 366,630 382,120 4.2%

    Source: Company, IIFL Research

    Figure 14: Segmental performance – Revenue (Jan Feb)

    Revenue (Rs m) Growth YoY

    Consumer electronics 41%*

    Fashion & Lifestyle 42%

    Grocery 35%

    Connectivity 32%

    Petro Retail 10%

    Total 33%

    Source: Company, IIFL Research

    * Excluding devices

    Figure 15: RIL provided new disclosures on segment-wise Ebitda breakdown

    Ebitda (Rs m) 4QFY19 4QFY20 YoY FY19 FY20 YoY

    Consumer electronics 5,420 4,310 -20% 18,946 27,850 47%

    Fashion & Lifestyle 6,950 9,750 40% 21,329 32,420 52%

    Grocery 3,790 7,830 107% 11,370 22,530 98%

    Connectivity 2,640 3,370 28% 8,910 12,370 39%

    Petro Retail 430 300 -30% 1,350 1,360 1%

    Total 19,230 25,560 33% 61,905 96,530 56%

    Source: Company, IIFL Research

    Figure 16: … providing clarity on respective segment ebitda margins

    Ebitda margin 4QFY19 4QFY20 FY19 FY20

    Consumer electronics 4.9% 7.0% 4.7% 6.2%

    Fashion & Lifestyle 21.2% 29.6% 19.9% 23.9%

    Grocery 5.7% 7.8% 4.9% 6.5%

    Connectivity 2.2% 2.2% 2.0% 2.2%

    Petro Retail 1.2% 0.9% 1.0% 1.0%

    Source: Company, IIFL Research

    Figure 17: Core Ebitda margin expanded 360bps YoY

    Source: Company, IIFL Research

    7.2% 7.6% 8.1% 8.1%

    8.8%

    11.2%

    4.7% 5.2% 5.4% 5.6%

    6.0% 6.7%

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    Core Retail Ebitda margin (%) Blended Ebitda margin (%)

  • [email protected] flcap.com

    Reliance Industries – BUY

    7

    R-JIO: Marginal miss, but given the circumstances, we'll take it

    JIO’s 10.6% QoQ Ebitda growth to Rs61.8bn was slightly below

    estimates (Rs63bn), primarily due to somewhat weak ARPU growth.

    Reported revenue growth of 6.2% included tailwinds from IUC, which

    we estimate to be ~150bps. Though we expected December-2019 tariff

    hikes to have benefitted JIO to a lower extent in 4Q vs. peers,

    considering JIO’s higher share of subs on longer-validity plans, the

    estimated service ARPU remaining flat QoQ was a negative surprise.

    Overall opex was in-line. PAT grew 73% QoQ to Rs23.3bn, helped by

    interest expense decline post infusion of Rs1.08trn equity from RIL.

    JIO’s debt as of end-FY20 stood at Rs262bn and it had Rs188bn

    deferred spectrum liabilities. Under the circumstances, this is a decent

    result from JIO, and 1Q should see further acceleration.

    Net adds of 17.5m in 4Q were in-line (3Q: 15m). Note that in 3Q, for

    most of October and November, JIO’s pricing discount to peers was

    lower, which resulted in Bharti (and VIL to a lower extent) gaining at

    JIO’s expense. 4Q marks some normalisation and would have been

    better by ~8% if the last week of March had not been marred by the

    COVID-19 related lockdown.

    Reported ARPU (which includes IUC) rose 1.7% QoQ to Rs130.6. JIO

    mentioned that its outgoing to total off-net minutes was 48-49% in 4Q,

    marking an improvement from the estimated 55% for 3Q. Based on

    JIO’s disclosures of total minutes, we estimate that ~1.5% of the ARPU

    increase was on account of the minutes-mix change. This indicates a

    largely-flat QoQ service ARPU.

    JIO has a higher proportion of its subs on long-term plans (3, 6 and 12-

    month validity plans). Thus, the ARPU increase for JIO from the Dec-

    2019 tariff hike will be spread till 2QFY21, in our view. JIO’s ARPU also

    saw the full-quarter impact from the elevated Jio Phone additions (due

    to the handset being offered at Rs699) in 3Q. Further, there was ~1ppt

    hit on QoQ ARPU growth due to one less day in 4Q. While we had

    budgeted for all these factors in our estimates, the flat service ARPU

    was a bit lower than our estimates.

    Total revenue grew 6.2% QoQ (est. ~4.7% service revenue growth).

    This does not include any significant contribution from the FTTH

    business, as JIO has just started charging a part of its 1m FTTH sub

    base.

    With the work-from-home (WFH) condition imposed by the COVID-19

    related lockdown, many households are realising the need for a good-

    quality internet connection. We expect JIO to accelerate FTTH

    deployment once the lockdown is lifted.

    JIO’s overall data traffic grew 7.5% QoQ at 141PB/day in 4Q. Data

    usage per sub rose, from 11.1GB in 3Q to 11.3GB in 4Q. Daily traffic

    has risen to 170PB during the lockdown. Ebitda grew 10.6% QoQ

    JIO’s off-net OG:IC ratio, which stood at 62:38 on 10-Oct (the day it

    started charging for IUC), had improved to 48:52 by Dec 31, 2019. JIO

    maintained that the 48:52 ratio through 4Q. Net-net, we estimate that

    JIO’s IUC Ebitda in 4Q was ~Rs850m vs. Rs2.6bn net IUC payout in 3Q

    and Rs6.5bn payout in 2Q.

    Other cost line items saw some sharp movements. Employee costs

    jumped up 23% QoQ due to the bonus payouts for 2019. Other

    expenses spiked up 48% QoQ, largely due to higher FX loss. S&D costs

    were down 36% due to lower gross additions. Network opex remained

    in check (3% QoQ growth). JIO’s gross debt at 4Q was Rs232bn.

    JIO incurred Rs30bn capex in 4Q and Rs195bn capex in FY20. IIFL’s

    Telecom team estimates that FY20 capex included the ~Rs55bn opex

    capitalisation. Also, note that under the InvIT structure, capex incurred

    by the tower and fibre SPVs is outside JIO and RIL. But even after

    factoring this in, capex intensity has clearly come off in FY20.

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    Reliance Industries – BUY

    8

    Figure 18: R-JIO’s 4QFY20 PAT grew ~178% YoY

    (Rs m) 4QFY19 3QFY20 4QFY20 YoY QoQ

    Revenue 117,150 139,680 148,350 26.6% 6.2%

    Costs

    Licence fee + SUC 11,800 14,830 15,760 33.6% 6.3%

    Access charges 17,080 14,420 13,670 -20.0% -5.2%

    Network opex 34,010 44,230 45,600 34.1% 3.1%

    S&D costs 3,290 3,560 2,270 -31.0% -36.2%

    Other costs 3,130 3,670 5,430 73.5% 48.0%

    Employee costs 4,580 3,140 3,870 -15.5% 23.2%

    Total opex 73,890 83,850 86,600 17.2% 3.3%

    Ebitda 43,260 55,830 61,750 42.7% 10.6%

    Ebitda margin 36.9% 40.0% 41.6% 470 bps 165 bps

    Depreciation and amortisation 17,440 17,960 21,680 24.3% 20.7%

    Ebit 25,820 37,870 40,070 55.2% 5.8%

    Interest expense 12,940 19,530 11,330 -12.4% -42.0%

    Other income 30 180 260 766.7% 44.4%

    Exceptional item 0 -1,770 310

    PBT 12,910 16,750 29,310 127.0% 75.0%

    Tax 4,510 3,250 6,000 33.0% 84.6%

    PAT 8,400 13,500 23,310 177.5% 72.7%

    EoP sub base (m) 306.7 370.0 387.5 26.3% 4.7%

    ARPU (Rs) 133 128 131 -1.9% 1.7%

    Data traffic (mn GB) 9,560 12,080 12,840 34.3% 6.3%

    Data traffic per day (PB) 106.2 131.3 141.1 32.8% 7.5%

    GB/month per sub 10.9 11.1 11.3 4.0% 1.8%

    Voice minutes (bn min) 724 826 876 21.0% 6.0%

    MOU per sub (min) 823 760 771 -6.3% 1.4%

    Source: Company, IIFL Research

    Figure 19: Capex intensity has clearly come off

    Source: Company, IIFL Research

    E&P – Small share now: Production in KG-D6 continued to decline,

    with gross production now at 0.9mmscmd. Domestic EBIT was virtually

    nil. The shale gas segment continues to report losses (~Rs4.9bn EBIT

    loss). The R-Cluster development project remains on track for first gas

    by June-2020, with 5mmscmd of gas from the field having been bid out

    recently, at a slope of 8.5-8.6% Brent. All in all, RIL expects 25-

    30mmscmd of gas from the three fields by 2022/23, with distribution

    being 40:20:40 across the R-cluster, MJ cluster and the satellite cluster.

    -50

    50

    150

    250

    350

    450

    1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20

    RIL capex Jio CapexRs bn

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    Reliance Industries – BUY

    9

    Marching ahead amid challenging times

    The macro environment in general remains challenging, given

    the ongoing COVID pandemic. The resultant slowing economic

    activity weighs high on RIL’s O2C (oil-to-chemicals) business

    and on R-Retail, while JIO seems to be relatively unaffected.

    Despite collapse in oil and petchem consumption, RIL continues

    to operate its plants near rated capacity, given cost

    competitiveness; however, spreads would be under pressure. In

    the retail business, it plans to grow omni-channel sales by

    leveraging JIO’s network. Also in the offing are i) a rights issue

    (Rs531bn); ii) potential induction of another strategic investor

    in JIO; iii) carving out of the O2C business (Aramco due

    diligence underway).

    O2C business: challenging macro

    RIL’s O2C business is significantly exposed to the macro landscape; as

    such, the global oil demand is down 25-30% and petrochemical

    consumption has also slowed down, as key industries such as

    automobiles and downstream polyester either remain shut or operate

    well below their rated capacity. Globally, high-cost refiners and

    petrochemical units have announced production cuts and, if the demand

    outlook remains weak, the cuts are likely to intensify. Back home, PSU

    refiners have also announced production cuts, while polymer plants of

    GAIL, etc remain non-operational.

    RIL, against this backdrop, has operated its plants at rated capacity and

    not announced any major cuts even now. This is perhaps due to: 1) the

    strategic location of its refinery and plants (ports), which enable it to

    focus on exports; 2) its refinery complexity is one of the highest across

    the region, thereby giving it flexibility to take advantage of swings in oil

    prices and alter the product slate for maximising margins; 3) refinery-

    petrochemical integration; and 4) diversified feedstock for its crackers

    (naphtha, ethane and propane imports, etc), which placed it favourably

    vs other crackers globally.

    While these advantages would allow RIL to operate its units near rated

    capacity, its operations are not insulated from the weakness in margins.

    As such, at a time when demand remains low, we see weakness across

    the commodity chain, which would weigh high on its financial

    performance, although we note that such a weak performance would be

    significantly better than domestic and some regional peers’.

    The RIL Board, meanwhile, has approved the carving out of its O2C

    business, including the fuel retailing JV with BP, into a separate

    company – Reliance O2C Limited. With this step, RIL has inched closer

    to inducting a strategic investor in its core O2C business; separately,

    RIL stated that ARAMCO’s due diligence is underway, though no definite

    timelines for its conclusion were stated.

    Figure 20: RIL’s refining units are relatively better placed due to higher complexity

    Source: Worldwide Refinery Survey and Complexity Analysis 2019 from the Oil & Gas Journal

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    Reliance Industries – BUY

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    Figure 21: Feedstock flexibility allows RIL to position itself favourably on the cost curve

    Source: Industry

    Reliance Retail – Focus on growing omni channel sales

    During the Microsoft meet after its 4Q earnings results, RIL highlighted,

    in detail, it plans to leverage JIO’s technology platform, to scale up the

    retailing operations. The strategy entails: 1) ramping up customer reach

    by leveraging JIO and Retail’s customer ecosystem; 2) building a brand

    portfolio; 3) strengthening digital platforms, marketplace, and omni-

    channel capabilities across the businesses (in particular fashion,

    electronics and grocery); 4) scaling up capacity to deliver goods to the

    customer premise (last mile); 5) rapidly scaling up physical stores and

    smart points, post COVID. As such, management commentary

    underscored taking aggressive steps to capture market share amid

    these challenging times.

    We recently tested ordering groceries on Whatsapp-JioMart and you can

    read more about our experience in our note here.

    Figure 22: R-Retail plans to leverage R-JIO’s vast network for growing its business

    Source: Company, IIFL Research

    R-JIO – Optionalities is in the JIO-FB deal

    JIO’s flat service ARPU QoQ was marginally below estimates. We await

    the results of peers, to determine the RMS movements in 4Q. We

    expect revenue growth to improve in 1Q, as the benefits of tariff hikes

    flow through. For now, we maintain our projections and US$67bn EV

    estimate. We remain positive on the long-term outlook of the industry

    and expect the government to allow deferred payment on AGR dues, to

    ensure VIL’s survival. For VIL to sustain, we believe more tariff hikes in

    the next 2-3 years are inevitable. JIO will also gain from VIL’s stretched

    financials. There could be optionalities in JIO/RIL, from indirect benefits

    of the FB-WhatsApp deal, which may improve stickiness.

    https://www.iiflcap.com/Upload/Research/IIFL_-_RIL_-_20200428.pdf

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    Reliance Industries – BUY

    11

    Targeting to be debt-free by CY20; rights issue

    RIL’s CFO, during the analyst briefing, stated that firm measures are in

    place for making RIL net debt-free in CY20; this would be through a

    combination of: 1) cash inflow (of Rs435bn) from the Facebook deal; 2)

    Rs70bn cash flow expected from the deal with BP (fuel retailing); 3)

    proposed rights issue (Rs531bn); and 4) induction of another strategic

    investor in R-JIO, on the lines of Facebook. It, however, does not

    consider the proposed investment by ARAMCO in its O2C business.

    Figure 23: RIL’s adjusted net debt stands at Rs2.3trillion, as of 4QFY20

    Source: Company, IIFL Research

    While RIL’s reported net debt is Rs1.6trillion, it does not take into

    account the Rs250bn deferred spectrum liability of JIO and Rs500bn of

    vendor financing. Further, the cash & cash equivalents (Rs175bn)

    include Rs370bn NCDs invested in the two InvITs (tower and fibre). RIL

    expects to close the tower InvIT deal with Brookfield by the end of the

    quarter and realise Rs120bn thereof; conclusion of the fibre InvIT deal

    would enable it to monetise the balance amount invested. As such,

    these NCDs are tradable and carry a coupon of 9%, as per RIL

    management.

    Separately, while announcing the rights issue (1:15), RIL has plans to

    raise Rs531bn, at a price of Rs1,257/share. The rights issue is to open

    by 22-May 2020 and would require investors to pay 25% on application

    and the balance in one or more calls. As such, the promoters have

    expressed intent to subscribe to their share of the rights issue (50%)

    and also to any quantum unsubscribed by the retail category. At this

    price, as per the RIL CFO, the rights issue is marginally EPS accretive

    (Figure 24).

    Figure 24: As per RIL, the rights issue price is marginally EPS accretive

    Source: Company

    Figure 25: Sensitivity of rights issue and pricing to EPS, as per RIL

    Source: Company

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    Reliance Industries – BUY

    12

    Revise estimates; top-pick; BUY

    We cut RIL’s consolidated EPS by 35%/11% for FY21/22ii, to

    reflect: i) weakness in the O2C segment; ii) some logistical

    challenges in scaling up the retail business in FY21, given the

    expected country-wide restrictions in 1H. Any recovery in O2C

    earnings would largely be contingent on recovery in global

    demand. Growing share of non-oil businesses would, however,

    provide some hedge to consolidated earnings.

    Cut earnings to reflect weak O2C

    The macro landscape though challenging, remains dynamic, with

    product and feedstock prices experiencing severe volatility; as such,

    slowing economic activity in India as well as globally would weigh high

    on RIL’s O2C business as well as on its retail initiative. Our earnings

    assumptions are based on further moderation in GRMs, petchem Ebitda

    and slower ramp up in the R-Retail business. We now factor in US$7/bbl

    GRM in FY21ii, which partly recovers to US$8.5/bbl in FY22ii; we do not

    take any material benefit of the petcoke gasification project (US$7.5bn

    capex), which is intended to lower the cash cost and improve the

    energy security of the Jamnagar complex. On these assumptions, we

    cut RIL’s consolidated FY21/22ii EPS by 11-35%. On a lower base, we

    forecast RIL’s consolidated Ebitda and PAT, to register 11.3% and 19%

    annual growth respectively, through FY20-22ii. Such growth does not

    take into account the impact of the proposed rights issue or any

    corporate restructuring.

    Figure 26: We expect some recovery in O2C Ebitda FY22ii onwards

    Consol EBITDA(Rs bn) FY19 FY20ii FY21ii FY22ii

    Refining 230 245* 176 229

    Petchem 376 309 238 295

    Domestic E&P 12 7 6 17

    Shale Gas 4 -4 -4 -3

    Retailing 62 97 96 132

    Jio 151 216 298 422

    Others 3 12 0 0

    Total 839 882 811 1,093 Source: Company, IIFL Research; Note: * excluding inventory loss of Rs42.5bn

    We note that earnings are sensitive to GRMs and to changes in the

    underlying petrochemical Ebitda/MT. For FY21, a US$1/bbl change leads

    to an 8-9% swing in EPS, while a US$50/MT change in blended

    petrochemical Ebitda implies a swing of ~15% in RIL’s consolidated

    EPS. Similarly, a Rs10 change in ARPU for R-JIO leads to a 7% change

    in RIL’s earnings.

    Re-iterate BUY

    While we lower RIL’s consolidated earnings, driven by weakness in the

    O2C business, we largely maintain its valuation. We believe that given

    the carving out of the business and the on-going discussion with

    ARAMCO, one would need to value the business on normalised earnings,

    rather than the depressed earnings trajectory as a result of the COVID

    pandemic. We value RIL’s O2C business at an EV of US$55bn, based on

    past 10-year average GRMs and 5-year average of petrochemical

    margins. We value the retail business at 22x FY22ii Ebitda; our SoTP-

    based calculations do not consider the impact of the proposed rights

    issue. RIL is our sector top-pick. Figure 27: Our SOTP-based price on FY22ii implies 14% upside

    US$ bn Rs bn Rs/share Comments

    Refining 27 2,055 324 GRM of US$9.5x/bbl

    Petrochemical 28 2,101 332 Blended Ebitda/MT of US$250

    E&P 1 102 16

    Jio 69 5,181 817 IIFL Telecom team valuation

    Retail 39 2,897 457 22x FY22ii Ebitda (D-Mart @ 44.6x)

    Other Investments

    1 86 14 At BV

    Treasury stock 6 484 76 20% discount to the market value

    EV 172 12,908 2,036

    Less: Net debt 31 2,306 364 Incl. vendor financing & Spectrum Liability for JIO

    Equity Value 141 10,602 1,673

    Source: Company, IIFL Research

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    Reliance Industries – BUY

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    Figure 28: US$1/bbl change in GRM = Rs46/share for RIL’s fair value

    Source: IIFL Research

    Figure 29: Our O2C EV is < indicated valuation for ARAMCO deal (US$75bn)

    Source: IIFL Research

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    Reliance Industries – BUY

    14

    Management

    P/E EV/Ebitda

    Background: Reliance Industries Limited (RIL) is one of India’s largest private sector enterprises, a vertically-integrated company with business

    interests in the energy and materials value chain. The group’s activities span across E&P, petroleum refining and marketing, petrochemicals (polyester,

    fibre intermediates, plastics and chemicals), retail, shale gas and telecom services. RIL was founded in 1958 by Dhirubhai Ambani, as a textiles trading

    firm in Mumbai. Today, RIL operates the largest single refinery complex (68mmtpa) at Jamnagar and one of the most complex refineries (Complexity

    index 21.1) in the world. It is among the top-ten largest producers of major petrochemical products (PP, PX, PTA, MEG) and the largest polyester

    producer in the world.

    Company snapshot

    Name Designation

    Mukesh Ambani Chairman and Managing Director

    Alok Agarwal CFO

    V Srikanth Joint CFO

    Source: Company

    3.0

    5.0

    7.0

    9.0

    11.0

    13.0

    15.0

    Apr-09 Jun-11 Sep-13 Nov-15 Feb-18 Apr-20

    12m fwd EV/EBITDA Avg +/- 1SD

    (x)

    Assumptions Y/e 31 Mar, Consolidated FY18A FY19A FY20ii FY21ii FY22ii

    Refining throughput (mbbl) 511.6 500.6 517.5 499.9 499.9

    Refining GRM (US$/bbl) 11.6 9.2 8.9 7.0 8.5

    Petchem volumes (mmt) 13.2 14.6 14.7 14.8 14.9

    Petchem EBIT margin (US$/mmt)

    249.2 316.3 245.5 165.9 214.5

    INR/US$ 64.6 69.9 71.0 75.0 75.0

    Source: IIFL Research

    6.0

    9.0

    12.0

    15.0

    18.0

    21.0

    24.0

    Apr-09 Jun-11 Sep-13 Nov-15 Feb-18 Apr-20

    12m fwd PE Avg +/- 1SD

    (x)

    Petchem, 45%

    Refining, 27%

    Others, 10%

    Jio, 18%

    EBITDA break-up - FY19

    RIL Capacities mmtpa

    Refining DTA Refinery 33.0

    SEZ Refinery 35.2

    Petrochemicals PE 2.3

    PP 2.9

    Paraxylene 4.8

    PTA 4.9

    PFY and PSF 2.1

    PET 1.1

    Source: Company, IIFL Research

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    Reliance Industries – BUY

    15

    Financial summary Income statement summary (Rs bn) Y/e 31 Mar, Consolidated FY18A FY19A FY20ii FY21ii FY22ii Revenues 3,917 5,671 5,967 7,886 8,673 Ebitda 642 839 882 811 1,093 Depreciation and amortisation (167) (209) (222) (231) (254) Ebit 475 630 660 580 839 Non-operating income 89 86 140 137 133 Financial expense (81) (165) (220) (226) (224) PBT 483 551 579 491 748 Exceptionals 11 0 (44) 0 0 Reported PBT 494 551 535 491 748 Tax expense (133) (154) (137) (123) (187) PAT 360 397 398 368 561 Minorities, Associates etc. 1 (1) (4) (4) (4) Attributable PAT 361 396 394 364 557

    Ratio analysis Y/e 31 Mar, Consolidated FY18A FY19A FY20ii FY21ii FY22ii Per share data (Rs) Pre-exceptional EPS 55.2 62.5 69.1 57.4 87.9 DPS 6.0 6.5 6.5 4.8 5.9 BVPS 463.0 610.7 715.1 767.0 847.9 Growth ratios (%) Revenues 28.3 44.8 5.2 32.2 10.0 Ebitda 38.9 30.8 5.1 (8.1) 34.8 EPS 17.0 13.1 10.6 (16.9) 53.1 Profitability ratios (%) Ebitda margin 16.4 14.8 14.8 10.3 12.6 Ebit margin 12.1 11.1 11.1 7.4 9.7 Tax rate 27.0 27.9 25.7 25.0 25.0 Net profit margin 9.2 7.0 6.7 4.7 6.5 Return ratios (%) ROE 12.6 11.6 10.4 7.7 10.9 ROCE 10.3 9.8 9.4 8.2 10.5 Solvency ratios (x) Net debt-equity 0.7 0.7 0.7 0.6 0.6 Net debt to Ebitda 3.3 3.3 3.5 3.7 2.7 Interest coverage 5.9 3.8 3.0 2.6 3.7 Source: Company, IIFL Research

    Balance sheet summary (Rs bn) Y/e 31 Mar, Consolidated FY18A FY19A FY20ii FY21ii FY22ii Cash & cash equivalents 43 75 309 331 267 Inventories 608 676 739 977 1,074 Receivables 176 301 197 260 286 Other current assets 599 839 1,229 1,624 1,965 Creditors 2,668 2,654 3,105 3,693 3,858 Other current liabilities 41 42 37 49 53 Net current assets (1,283) (805) (668) (550) (320) Fixed assets 5,851 5,658 6,315 6,471 6,709 Intangibles 58 120 103 103 103 Investments 829 2,355 2,768 2,768 2,768 Other long-term assets 0 0 0 0 0 Total net assets 5,454 7,328 8,518 8,791 9,260 Borrowings 2,188 2,875 3,363 3,303 3,253 Other long-term liabilities 332 582 621 627 632 Shareholders equity 2,935 3,871 4,533 4,862 5,375 Total liabilities 5,454 7,328 8,518 8,791 9,260

    Cash flow summary (Rs bn) Y/e 31 Mar, Consolidated FY18A FY19A FY20ii FY21ii FY22ii Ebit 475 630 660 580 839 Tax paid (98) (122) (84) (123) (187) Depreciation and amortization 167 209 222 231 254 Net working capital change 185 (251) 219 (96) (294) Other operating items (14) (8) (37) 1 1 Operating cash flow before interest 715 457 981 593 613 Financial expense (177) (233) (285) (226) (224) Non-operating income 23 16 16 137 133 Operating cash flow after interest 561 240 711 504 522 Capital expenditure (730) (928) (756) (387) (492) Long-term investments 23 (78) 141 0 0 Others (7) (25) (173) 0 0 Free cash flow (152) (791) (77) 117 30 Equity raising 5 2 1 0 0 Borrowings 199 865 356 (60) (50) Dividend (39) (43) (46) (35) (44) Net chg in cash and equivalents 12 33 234 21 (63) Source: Company, IIFL Research

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    Reliance Industries – BUY

    16

    Disclosure: Published in 2020, © IIFL Securities Limited (Formerly ‘India Infoline Limited’) 2020

    India Infoline Group (hereinafter referred as IIFL) is engaged in diversified financial services business including equity broking, DP services, merchant banking, portfolio management services, distribution of Mutual

    Fund, insurance products and other investment products and also loans and finance business. India Infoline Ltd (“hereinafter referred as IIL”) is a part of the IIFL and is a member of the National Stock Exchange of India Limited (“NSE”) and the BSE Limited (“BSE”). IIL is also a Depository Participant registered with NSDL & CDSL, a SEBI registered merchant banker and a SEBI registered portfolio manager. IIL is a large broking

    house catering to retail, HNI and institutional clients. It operates through its branches and authorised persons and sub-brokers spread across the country and the clients are provided online trading through internet

    and offline trading through branches and Customer Care.

    a) This research report (“Report”) is for the personal information of the authorized recipient(s) and is not for public distribution and should not be reproduced or redistributed to any other person or in any form without IIL’s prior permission. The information provided in the Report is from publicly available data, which we believe, are reliable. While reasonable endeavors have been made to present reliable data in the

    Report so far as it relates to current and historical information, but IIL does not guarantee the accuracy or completeness of the data in the Report. Accordingly, IIL or any of its connected persons including its

    directors or subsidiaries or associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained, views and

    opinions expressed in this publication.

    b) Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment of its original date of publication by IIFL and are subject to change without notice. The price, value of and income from any of the securities or financial

    instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or

    income of such securities or financial instruments.

    c) The Report also includes analysis and views of our research team. The Report is purely for information purposes and does not construe to be investment recommendation/advice or an offer or solicitation of an offer to buy/sell any securities. The opinions expressed in the Report are our current opinions as of the date of the Report and may be subject to change from time to time without notice. IIL or any persons

    connected with it do not accept any liability arising from the use of this document.

    d) Investors should not solely rely on the information contained in this Report and must make investment decisions based on their own investment objectives, judgment, risk profile and financial position. The recipients of this Report may take professional advice before acting on this information.

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    f) This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to local law, regulation or which would subject IIL and its affiliates to any registration or licensing requirement within such jurisdiction. The securities described

    herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this Report may come are required to inform themselves of and to observe such

    restrictions.

    g) As IIL along with its associates, are engaged in various financial services business and so might have financial, business or other interests in other entities including the subject company(ies) mentioned in this Report. However, IIL encourages independence in preparation of research report and strives to minimize conflict in preparation of research report. IIL and its associates did not receive any compensation or other

    benefits from the subject company(ies) mentioned in the Report or from a third party in connection with preparation of the Report. Accordingly, IIL and its associates do not have any material conflict of interest

    at the time of publication of this Report.

    h) As IIL and its associates are engaged in various financial services business, it might have:-

    (a) received any compensation (except in connection with the preparation of this Report) from the subject company in the past twelve months; (b) managed or co-managed public offering of securities for the subject company in the past twelve months; (c) received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) received

    any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) engaged in market making activity

    for the subject company.

    i) IIL and its associates collectively do not own (in their proprietary position) 1% or more of the equity securities of the subject company mentioned in the report as of the last day of the month preceding the publication of the research report.

    j) The Research Analyst engaged in preparation of this Report or his/her relative:-

    (a) does not have any financial interests in the subject company (ies) mentioned in this report; (b) does not own 1% or more of the equity securities of the subject company mentioned in the report as of the last

    day of the month preceding the publication of the research report; (c) does not have any other material conflict of interest at the time of publication of the research report.

    k) The Research Analyst engaged in preparation of this Report:-

    (a) has not received any compensation from the subject company in the past twelve months; (b) has not managed or co-managed public offering of securities for the subject company in the past twelve months; (c) has not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) has not received any compensation for

    products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) has not received any compensation or other benefits from

    the subject company or third party in connection with the research report; (f) has not served as an officer, director or employee of the subject company; (g) is not engaged in market making activity for the

    subject company.

    L) IIFLCAP accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of IIFLCAP

    and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account.

    We submit that no material disciplinary action has been taken on IIL by any regulatory authority impacting Equity Research Analysis.

  • [email protected] flcap.com

    Reliance Industries – BUY

    17

    This research report was prepared by IIFL Securities Limited (Formerly ‘India Infoline Limited’) Institutional Equities Research Desk (‘IIFL’), a company to engage activities is not dealer United States and, therefore, is not subject to U.S. rules of reports independence of research report is provided for distribution to U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S.

    Securities Exchange recipient of wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this report should do IIFL IIFLCAP’), broker dealer in the

    United States.

    IIFLCAP accepts responsibility for the contents of this research report, a person whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry FINRA”) and an person of IIFLCAP may not be subject to applicable restrictions under FINRA Rules with held by analyst IIFL has other business units with independent research teams different views stocks and This report for the

    personal information of the authorized recipient and is not for public distribution. This should not be reproduced or redistributed to any other person or in any form. This report is for the general information of the

    investors, and should not be construed as an offer or solicitation of an offer to buy/sell any securities.

    We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates do not or completeness. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to from to time without notice. or any persons connected it accept any liability arising from the use of this document. The recipients of this material should rely on

    their own judgment professional advice on this information. IIFL or any of its connected persons including its directors or or not in way for any or damage that may arise to any from any inadvertent error the

    information contained, views and opinions expressed in this publication.

    IIFL and/or its affiliate companies may deal in the securities mentioned herein as a broker or for any transaction as a Maker, Investment Advisor, to issuer persons. IIFL generally prohibits its analysts from having

    financial interest in the securities of any of the companies that the analysts cover. In addition, company its employees from conducting Futures & Options transactions or holding any shares for a period of less than 30 days.

    Past performance should not be taken as an indication or guarantee of performance, and no or warranty, express performance. estimates contained in this report reflect a judgment of its original date of publication by

    IIFL and are subject to change of mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate may adverse on the price of such securities

    or financial instruments.

    Analyst Certification: (a) that the views expressed in the research report accurately reflect part of her compensation was, is, or will be directly or indirectly related to the specific recommendation or views contained

    in the research report.

    A graph of daily closing prices of securities is available at http://www.nseindia.com/ChartApp/install/charts/mainpage.jsp, www.bseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes.

    (Choose a company from the list on the browser and select the “three years” period in the price chart).

    Name, Qualification and Certification of Research Analyst: Harshvardhan Dole(B.Tech, PGBDA), Rishi Masand(MS Finance)

    IIFL Securities Limited (Formerly ‘India Infoline Limited’), CIN No.: L99999MH1996PLC132983, Corporate Office – IIFL Centre, Kamala City, Senapati Bapat Marg, Lower Parel, Mumbai – 400013 Tel: (91-

    22) 4249 9000 .Fax: (91-22) 40609049, Regd. Office – IIFL House, Sun Infotech Park, Road No. 16V, Plot No. B-23, MIDC, Thane Industrial Area, Wagle Estate, Thane – 400604 Tel: (91-22) 25806650. Fax: (91-22)

    25806654 E-mail: [email protected] Website: www.indiainfoline.com, Refer www.indiainfoline.com for detail of Associates.

    Stock Broker SEBI Regn.: INZ000164132, PMS SEBI Regn. No. INP000002213, IA SEBI Regn. No. INA000000623, SEBI RA Regn.:- INH000000248

    Key to our recommendation structure

    BUY - Stock expected to give a return 10%+ more than average return on a debt instrument over a 1-year horizon.

    SELL - Stock expected to give a return 10%+ below the average return on a debt instrument over a 1-year horizon.

    Add - Stock expected to give a return 0-10% over the average return on a debt instrument over a 1-year horizon.

    Reduce - Stock expected to give a return 0-10% below the average return on a debt instrument over a 1-year horizon.

    Distribution of Ratings: Out of 230 stocks rated in the IIFL coverage universe, 111 have BUY ratings, 10 have SELL ratings, 85 have ADD ratings and 23 have REDUCE ratings

    Price Target: Unless otherwise stated in the text of this report, target prices in this report are based on either a discounted cash flow valuation or comparison of valuation ratios with companies seen by the analyst as comparable or a combination of the two methods. The result of this fundamental valuation is adjusted to reflect the analyst’s views on the likely course of investor sentiment. Whichever valuation method is used there

    is a significant risk that the target price will not be achieved within the expected timeframe. Risk factors include unforeseen changes in competitive pressures or in the level of demand for the company’s products. Such

    demand variations may result from changes in technology, in the overall level of economic activity or, in some cases, in fashion. Valuations may also be affected by changes in taxation, in exchange rates and, in

    certain industries, in regulations. Investment in overseas markets and instruments such as ADRs can result in increased risk from factors such as exchange rates, exchange controls, taxation, and political and social

    conditions. This discussion of valuation methods and risk factors is not comprehensive – further information is available upon request.

    http://www.nseindia.com/ChartApp/install/charts/mainpage.jsphttp://www.bseindia.com/http://economictimes.indiatimes.com/markets/stocks/stock-quotesmailto:[email protected]://www.indiainfoline.com/http://www.indiainfoline.com/

  • [email protected] flcap.com

    Reliance Industries – BUY

    18

    0

    500

    1,000

    1,500

    2,000

    Ap

    r-1

    7

    Jun

    -17

    Au

    g-1

    7

    Oct

    -17

    De

    c-1

    7

    Feb

    -18

    Ap

    r-1

    8

    Jun

    -18

    Au

    g-1

    8

    Oct

    -18

    De

    c-1

    8

    Feb

    -19

    Ap

    r-1

    9

    Jun

    -19

    Au

    g-1

    9

    Oct

    -19

    De

    c-1

    9

    Feb

    -20

    Ap

    r-2

    0

    Price TP/Reco changed date(Rs)

    Reliance Industries: 3 year price and rating history Date Close price (Rs)

    Target price

    (Rs)

    Rating

    28 Apr 2020 1417 1710 BUY

    20 Jan 2020 1581 1725 BUY 02 Dec 2019 1551 1592 BUY

    22 Oct 2019 1416 1588 BUY

    22 Jul 2019 1249 1530 BUY

    22 Apr 2019 1386 1508 BUY

    08 Feb 2019 1290 1396 BUY

    30 Nov 2018 1169 1430 BUY 19 Oct 2018 1151 1312 BUY

    30 Jul 2018 1130 1285 BUY

    24 Jul 2018 1120 1250 BUY

    17 Jul 2018 1076 1113 BUY

    Date Close price

    (Rs)

    Target price

    (Rs) Rating

    16 Oct 2017 876 940 BUY

    24 Jul 2017 1585 1745 BUY 16 Jun 2017 1384 1475 BUY


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